Corporation tax and associated companies

From 1 April 2023 companies with taxable profits over £250,000 will pay corporation tax at the main rate of 25%. Companies with taxable profit of £50,000 or less will be subject to corporation tax at the rate of 19% and companies with profit levels between £50,000 and £250,000 will pay tax at 25%, reduced by marginal relief.

Broadly a company is associated with another company if at any time within the preceding 12 months one company has control of the other or if both are under the control of the same company or person or persons.

Meaning of ‘control’ (s450 CTA 2010)
‘Control’ is as defined in sections 450 and section 451 of CTA 2010.

A person (P) is treated as having ‘control’ of a company (C) if P exercises, is able to exercise, or is entitled to acquire, direct or indirect control over C’s affairs. It includes the possession of, or right to acquire:

a)    the greater part of the share capital or issued share capital of C; or

b)    the greater part of the voting power of C; or

c)     so much of the issued share capital of C as would give the right to receive the greater part of the company’s income, were all that income distributed; or

d)    rights to the greater part of C’s assets in a distribution on a winding-up or in any other circumstances.

Any rights that P or any other person has as a loan creditor are disregarded for the purposes of (c) above.

If two or more persons together satisfy any of the above conditions, they are treated as having control of C.

For the purposes of the above, a person is treated as entitled to acquire anything which they are entitled to acquire at a future date or will, at a future date, be entitled to acquire.

The control test is concerned solely with the shareholders’ ‘share’ power or voting power. Control by directors or management is irrelevant.

Attribution of rights and powers of others (s451 CTA 2010)
In determining whether any person (or persons) has control, the rights and powers of certain other persons may be attributed to them.

The rights and powers of a person’s nominee must be attributed to that person. That is, any rights or powers which another person possesses or may be required to exercise on the direction or on behalf of that person.

The following rights and powers may also be attributed to a person (P):

a)    of any company of which P has, or P and his associates have, control

b)    of any two or more companies within (a) above

c)     of any associate of P

d)    of any two or more associates of P.

‘Associate’ in relation to a person (P) is defined in section 448 CTA 2010 as:

• any spouse or civil partner of P, any parent or remoter forebear of P, any child or remoter issue of P, or any brother or sister of P
• any partner of P
• the trustees of any settlement of which P, or any relative of P (living or dead), is or was a settlor
• if P has in interest in any share or obligations of a company which are subject to a trust, the trustees concerned
• if P is itself a company and has an interest in any share or obligations of a company which are subject to a trust, any other company which has an interest in those shares or obligations
• if P has interest in any shares or obligations of a company which are part of a deceased person’s estate, the personal representatives of the deceased
• if P is itself a company and has an interest in any shares or obligations of a company which are part of a deceased person’s estate, any other company which has an interest in those shares or obligations.

Useful HMRC Company Taxation Manuals

CTM03570 provides a definition of associated companies.

Control is defined under several headings:

• control over the affairs of the company (CTM60220)
• control right to receive most assets (CTM60230)
• control rights in a winding-up (CTM60320)
• control over income of the company (see (3), CTM60220).

Guidance in determining the rights attributed to any person can be found in CTM60140 to CTM60170.

Guidance on specific exemption can be found in CTM60105.

More information

Read our articles, 'Exemptions under the associated companies changes' and 'Associated companies and corporation tax: examples'